Telecom Circle » Carriershttp://www.telecomcircle.com
Telecom Circle analyses the latest trends and services within the Wireless and Internet space.Fri, 22 May 2015 15:09:38 +0000en-UShourly1http://wordpress.org/?v=3.9.7LTE in Indiahttp://www.telecomcircle.com/2014/05/lte-in-india/
http://www.telecomcircle.com/2014/05/lte-in-india/#commentsSun, 11 May 2014 17:34:25 +0000http://www.telecomcircle.com/?p=5397India has the fastest growing mobile internet base across the world and is poised to become the 2nd largest country (by user base) across the world by end 2015. Currently, the country has users on 2G and 3G but the 4G (LTE is commonly referred as 4G) networks are yet to be rolled out. Last few weeks have witnessed significant action on the LTE (Long Term Evolution) front in India after a relative lull post 2300 MHz spectrum auctions in 2010. This was due to auction of 1800 MHz spectrum which the operators plan to use for LTE.

Why is LTE required in India?

India has the 3rd largest mobile internet users across the world driven by entertainment (video, gaming) and social networking. The consumers are fast migrating to smartphones and the installed base of smartphones in India is likely to reach 150 million by end 2014. This means that the demand for data would continue to increase but the operators are constrained by low spectrum in 3G bands and heavy voice traffic on 2G. The current mobile internet experience is inconsistent and marred by frustratingly low speeds.

LTE can not only give better efficiency but can also reduce the cost per bit. LTE networks are more reliable than the 2G or 3G networks and are easier to manage. By moving to this super efficient network, operators will be able to offer the new types of services (video calling, high-definition content streaming, etc.) that weren’t possible before. It’ll probably also bring changes in how they price and sell services to consumers.

LTE Scenarios for India

India was expected to go the TDD-LTE way just like China on 2300 MHz spectrum band but a couple of events changed the landscape completely. First, the 1800 MHz spectrum came up for auctions and then the regulatory authorities allowed the winners of the spectrum to use the spectrum for any technology. This move allowed the operators to use the spectrum for any technology including refarming of existing spectrum. As a result the following 3 scenarios have emerged:

A quick look at the winners of 1800 MHz spectrum (figure below) shows that no player would be able to launch FD-LTE services on 1800 MHz across the country unless there is consolidation in the industry.

Apart from the recent win in 1800 MHz spectrum, Reliance Jio has a nationwide spectrum for 2300 MHz and Airtel has 2300 MHz spectrum in 8 circles. CDMA players like RCOM, Tata and MTS have 850 MHz spectrum that can be re-farmed post auctions. It is getting very clear that India will see multi band LTE roll-outs. This multi-band requirement will be a headache for the handset vendors as it is likely to increase the prices but at the moment it appears inevitable.

Different operators will follow different strategies depending on their spectrum holdings. The approach used by various operators would be as follows:

1. Reliance Jio- Likely to launch FD-LTE in circles where it has won 1800 MHz spectrum and TD-LTE in rest of the circles. It might use the 2300 MHz for back-haul in a few circles. Though it got the nationwide spectrum in 2300 MHz, tt is reluctant to launch TD-LTE services due to higher CAPEX required for 2300 MHz band. It may even bid for 850 MHz spectrum when it comes for auction to optimize the costs. Reliance Jio is the only carrier without 2G network and hence does not have circuit switch as a fall back option. This means that it would be implementing VoLTE (Voice over LTE) to provide voice services.

2. Airtel - Likely to concentrate on FD-LTE on 1800 MHz though it has TD-LTE service in 4 cities and licence for 8 circles. There is a good overlap between Airtel’s 2300 MHz and 1800 MHz circles. Moreover, it has 1800 MHz spectrum in all big circles except for Maharashtra, UP East and UP West. Hence, it is likely to focus on FD-LTE only. It has circuit switch fall back option available due to existing nation-wide 2G services and hence is likely to gain the most from the existing device ecosystem which is most elaborate on 1800 MHz.

3. Vodafone & Idea - Likely to wait and watch. Both the players have got 1800 MHz spectrum in key circles but are unwilling to commit due to the high Capex. If they see traction for LTE services, they are likely to move fast

4. CDMA Players (RCOM, MTS and Tata) - There are very few subscribers left on CDMA networks. Once the auctions take place for 800 MHz CDMA spectrum, the existing players would be allowed to re-farm the 800 MHz spectrum for LTE in 850 MHz. This should make the players like Tata and MTS pretty attractive for acquisition. Given the current troubles of Tata, in all likelihood, it would be looking at LTE as an exit strategy

I expect the first few LTE networks to come up by the end of the year and spread to top 20 towns by middle of next year. I also expect the operators, particularly Reliance Jio to aggressively price the LTE services to drive adoption. Entertainment and home broadband are the two areas that most of the players would be targeting.

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Disclaimer: The views expressed in this article are my personal views and do not reflect the views of my employer.
]]>http://www.telecomcircle.com/2014/05/lte-in-india/feed/6The chronicle of Telcos vs. OTThttp://www.telecomcircle.com/2013/09/the-chronicle-of-telcos-vs-ott/
http://www.telecomcircle.com/2013/09/the-chronicle-of-telcos-vs-ott/#commentsFri, 06 Sep 2013 19:47:24 +0000http://www.telecomcircle.com/?p=4935The battle lines were drawn long back between the Over-The-Top Content (“OTT”) services and the Telcos, since the launch of early Voice-over-Internet Protocol (“VOIP”) and messaging applications. The Telcos were already involved in the battle over shrinking voice revenues, and on the top of that OTT services started making a dent on their messaging revenues. In today’s era of smartphones, many believe YouTube, Skype, Facebook, Whatsapp etc., would lead to impending demise of Telcos and not without good reason.

What is happening?

According to Cisco’s latest report on Mobile data traffic, YouTube accounts for a quarter of mobile internet traffic and Whatsapp is leading in worldwide messaging traffic. In respect to importance of voice and messaging revenues for Telcos, they must prioritize strategies to protect future cash flow from these sources.

OTT will, undoubtedly, create disruption within traditional value ecosystem of Telcos, and threaten their voice and messaging revenues. Voice calls/messages and text messages still represent a crucial portion of Telcos earnings – according to recent Forrester report, on an average about three quarters of the revenues comes from both these sources. And EBITDA margins on voice and message are still higher than other services. This translates to higher impact of voice and message on Telcos valuations. The penetration of broadband has been a double edged sword for the Telcos. On one hand, higher number of connections translates to greater revenues, but on the other hand it has provided a platform for OTT services to effectively compete with Teclos. Moreover, most of OTT services are not integrated or bound within any particular network infrastructure and hence this hampers Telcos plans for capital intensive investment on infrastructure.

How have Telcos responded?

Telcos have already started to respond to this usurpation of the telecom segments by OTT services in multiple ways. Some of these ways include blocking OTT services, implementing surcharges etc., and could possibly lead to higher churn and users moving to alternative Telcos. Some of the different options that Telcos are using or likely to adopt to respond to OTT factor:

Blocking OTT: According to Reuters reports1, regulators in Vietnam are moving closer towards banning OTT services. In 2012, according to a media report2, Korean’s regulators allowed data throttling by Telcos to control proliferation of OTT services. This appears to be a short-term strategy and will most likely directly impact on revenue-generation for the Teclos both due to higher churning and lower data usage. Also, according to critics, such controls over OTT services are an attempt by Teclos to stall the inevitable revolutionary effects of the Internet.

Data Charges: A majority of the Teclos are currently monetizing the access to OTT services via data charges in monthly packages. Such tactic of retaining billing relationship has not so far been highly effective according to most experts.

Telco app: Orange’s “Libon”, T-Mobile’s “Bobsled”, China Telecom’s “YiChat”, Swisscom’s “iO” etc., are some of the new voice/messaging app services launched by Telcos to counter the competition from OTT services. Most of these services offer free voice and text with a strategy to limit users to use rival OTT. However, the jury is still out if this strategy has presented a better off-net based revenue generating model.

Partnerships with OTT services: More and more Telcos are also exploring partnership opportunity with OTT players such as 3, Verizion with Skype, Reliance with Whatsapp, Airtel with Facebook etc. and benefit from their traffic. Such partnership gave illustrated that OTT also represents an opportunity for Telcos to monetize popular apps by providing them to customers as an incremental value-added service. However, I think such a strategy might not benefit the mid-small Telcos.

GSMA’s Joyn initiative – Teclos such as Telenor, Orange, Telefonica, T-Mobile, Vodafone etc. are attempting to create a new OTT standard by enabling Rich Communication Services3. While this GSMA-led initiative is very long term and has the potential to be the solution, but many Telcos feel, according to a recent survey4, it has taken too long to launch and probably not sure if Joyn can beat OTTs.

How would it look in future?

Even though the above mentioned strategies might just work, however, I think that the voice and messaging revenues will continue to slide for Telcos.

However, the change in customer behavior also provides an opportunity for the traditional Telcos to alter their business model. Though it’s easier said than done, Telcos have to re-model their business to be more flexible to enable the customers to receive services on-demand on any devices at any time. According to Forrester and other reports, the key basis of the evolving business model for Telco would have key distinct characteristics:

Adapt to OTT Model: As discussed earlier in this article, Teclos could launch their own OTT application. Although these services by themselves may not be very successful but it will be a beginning of changing the business model towards network independent strategy regarding service delivery and thereby reaching to customers outside the Telco’s footprint.

Dynamic payment for OTTs: Another opportunity would be related to dynamic and customized pricing for the end-customers for OTT services. With Transaction management solutions like merchant discovery and the evaluation of sales leads, support for loyalty schemes, prevention of bill shock, and post-transaction support, Telcos can provide additional support to OTTs and viable revenue stream. Connectivity with devices and apps: Devices are the point of interaction between OTT players and customers. This gives Telcos an opportunity to create a distribution model for distributing contents on behalf of OTTs and have a revenue-sharing agreement. For instance the relationship between Amazon and Verizon for services on Kindle is a prime example.

As discussed earlier, Telcos will increasingly seek partnership with OTT services on many different levels as they see a huge surge in demand for smartphones and hence, data packages. For the bigger Telcos, it makes more sense to seek meaningful partnership with OTT services to make themselves more attractive to customers as well as partners. Apart from traditional alliances between OTT services and Telcos (Verizion ~ Skype; Reliance ~ Whatsapp), there are some other opportunities that needs to be explored as well.

Is it that bad?

The impact of OTTs on Telcos have been exaggerated by many critics and in reality, the situation may not be as panicking as it seems for the Telcos. The loss of Telco’s revenues does not always translate to equal gain by OTT services. This is because a major part of the revenues that moves from voice and messaging revenues of Telcos to OTT services actually goes out of the market altogether. Firstly because most OTT services are free or are very cheap, and do not have interconnect revenues, nor other fees. Further, the revenue loss from voice and message has also resulted in increase of mobile broadband tariffs.

Where do we go from here?

It is unlikely that messaging and voice revenues will die out anytime soon. Informa forecasts that global messaging and voice revenues and traffic will continue to increase through 2016, for three main reasons: The adoption and use of OTT service is far from universal; although there are multiple OTT service “communities” where consumers can interact each other for free, OTT users would typically use SMS or Voice calls when communicating with non-OTT users and messaging revenues is starting to hit its stride in the enterprise mobile messaging market.

Source: Forrester Research “Voice And Messaging Are Not Dead” by Dan Bieler, January 16, 2013

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]]>http://www.telecomcircle.com/2013/09/the-chronicle-of-telcos-vs-ott/feed/1Global Subscriber Basehttp://www.telecomcircle.com/2011/09/subscribers/
http://www.telecomcircle.com/2011/09/subscribers/#commentsThu, 22 Sep 2011 17:27:52 +0000http://www.telecomcircle.com/?p=3052From this week, I plan to publish one chart a week that should be of interest to all the readers. This week I am publishing the global subscriber base which crossed 5 billion mark last year. Request the readers to give their feedback and let me know what charts they would like to see in the coming weeks

]]>http://www.telecomcircle.com/2011/09/subscribers/feed/2Ghost Mobile Subscribers in Indiahttp://www.telecomcircle.com/2011/09/ghost-mobile-subscribers-in-india/
http://www.telecomcircle.com/2011/09/ghost-mobile-subscribers-in-india/#commentsTue, 20 Sep 2011 12:02:37 +0000http://www.telecomcircle.com/?p=3030Mobile industry has been the showcase of Indian growth story in the post liberalization era. In 2010, it added close to 20 million subscribers per month which is more than population of over 150 countries. There are claims that this hyper growth is due to the intense competition among operators. However, it is now clear that the mobile growth story is not as rosy as what it has been made out to be. Hyper competition has lead to over-reporting of subscriber base by not declaring the subscriber churn. On top of this, the tariff war has lead to significant multi-SIM ownership. This means that the real subscriber base is much lower than the reported subscription base. In my estimates, the real subscriber base is just a little over 500 mn (vs. 858 million reported base as on 31st July, 2011).

TRAI (Telecom Regulatory Authority of India) started to report the active subscriber base based on VLR (Visitor Location Registry) since September last year. This move was necessitated due to the existence of ghost subscribers and TRAI wants to allocate spectrum based on the actual subscribers. VLR is a temporary database of subscribers who are connected to the network at any given point of time. Since each base station in the network is served by one VLR, a subscriber cannot be present in more than one VLR at a time unless he is using multiple handsets or dual SIM handsets. If we assume that number of in-roamers are equal to out-roamers, then it is same to assume that VLR should be an accurate measure of active base in a service network. TRAI reported 602 million subscribers as per VLR in July, 2011 which is only 70% of the reported base. The movement of reported base and the VLR base is in the chart below:

The 602 million VLR base reported by TRAI is an over projection as instead of taking the VLR data at a given point of time, they have given the liberty to the operators to report the highest VLR base in the month. This leads to two types of issues

The churn is not taken into account accurately. If I am customer on Airtel network for 10 days in a month and then shifted to Tata for the rest of the month, there is a possibility of double counting

Mulitple SIM owners are counted twice as they are likely to use all their SIMs at least one a month

As per Juxtconsult survey, the total number of unique subscribers in India are 407 million (Click here to download Snapshot-Juxt-India-Mobile-2011 report). This number looks low to me given the inherent issues with consumer surveys of this size. I would recon that the real unique subscriber base is somewhere in between 407 and 602 million or in other words it is a little over 500 million. I tried to triangulate the 500 million subscriber base with other available data points like handset market size, ARPU, etc. and this number looks like close to the reality.

However, I am optimistic that the some sanity would soon prevail in the Indian market. One of the executives, who refused to be named, from the operator mentioned that the monthly churn rates have shot-up to 5-8% and for some operators, it is well into double digits. At 6% monthly churn on reported base, the absolute monthly churn comes to 50-55 million. This means that to do 10 million of net additions, the operators are doing 60-65 million gross additions. This level of gross addition is unsustainable as @ $3 customer acquisition cost per customer, the industry spends over $200 million every month in customer acquisition alone plus the cost of the SIMs. Normalcy seems to be returning to the market as we have seen the reported subscriber additions declining to 7 million in July from a peak of 20 million in December last year. I have been told by operator sources that the real subscriber additions have not declined and are stable at 5-6 million per month between December and July. It is just that the operators have reduced their gross additions to control costs and have started to report numbers closer to reality.

Bottom Line

The real subscriber base is ~500 million and rest all are ghost subscribers. This means that the real mobile penetration is still below 50% and not 72% as reported by telecom operators and the real ARPU is closer to Rs 150 (~$3) than the reported ARPU of Rs 100 (~$2).

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]]>http://www.telecomcircle.com/2011/09/ghost-mobile-subscribers-in-india/feed/0Changing Dynamics of Telecom Industryhttp://www.telecomcircle.com/2011/03/changing-dynamics-of-telecom-industry/
http://www.telecomcircle.com/2011/03/changing-dynamics-of-telecom-industry/#commentsTue, 08 Mar 2011 18:18:56 +0000http://www.telecomcircle.com/?p=2660The pace of change has not been so fast in the mobile industry. The success of smartphones and associated platforms has increased the value chain overlaps between a handset vendor and an operator. Traditionally, the operators have had an upper hand in the relationship with the handset vendors especially in the western markets as the operators distribute the handsets themselves and provide subsidy. In return, handset vendors have shied away from antagonizing the operators by doing anything that can make the operators a dumb pipe. However, Apple’s entry changed everything and now there is a tussle between the operators and the handset vendors on who controls the most valuable parts of the value chain.

In the past, the operators had almost exclusive access to the subscribers (refer to the image below). Operators used to procure and sell the handsets and provided the voice & data services to the subscribers. This meant that the handset vendors did not have any regular contact with the subscriber. However, now the handset are moving very fast to exploit one of their few unique strengths which is service distribution and discovery on-device and therefore monetise from retailing and managing services at point-of-purchase and during in-life use.

What has changed?

The question is everybody’s mind is what has changed that is leading to huge disruptions in the telecom industry. For any value added services provider, the most important part is the distribution, delivery and billing of its service (refer to the VAS value chain in the figure below).

Earlier, carriers were the only Go-To-Market medium for the VAS providers. However, handset vendors (Apple, Nokia, Samsung, etc.), operating system providers (Windows and Android) and independent players (GetJar) now have application stores which can not only market and distribute services but can also do direct billing. Mobile payments are likely to further reduce the dependence of the application stores on carriers for billing. With players apart from the carriers becoming service inventory brokers, the new Telecom Industry value chain looks something like the figure below:

It is interesting to note the difference in the above value chain from pre 2007 value chain (figure 1) which was nearly linear. The value chain now is structured in a way that all the different players in the ecosystem have direct access to the user.

Why the change?

The increasing connection between physical devices and online services is driving new applications that take personal data and turn it into useful, personal, social, visual and manipulable representations. For long the mobile carriers had best opportunity to define the services landscape but they squandered the opportunity, e.g. the carriers always had the location data and could have started the location based services long time back but they could not do it as they were too busy in day to day operations. The operators did not create an ecosystem that could have created huge services business with their support. The other problem with the operators was fragmentation and hence no operator had scale. The handset vendors and internet players have now taken upon themselves to change the telecom industry.

Convergence is driving the change as it is leading to increasing services revenues that has attracted many internet players to mobility. Apple and Google are already trying to capture the living room of consumers by extending their presence to all the screens in a house including television. It is very clear now that mobile internet is going to far exceed the fixed internet so all the players from the internet space are entering the mobile industry. The internet players are trying to replicate the fixed line internet where the service provider is just a dumb pipe. The entry of internet players has acted as a catalyst for change.

Five recent events with far reaching repercussions for Telecom Industry

Operators fear that they would be reduced to a dumb pipe just like the PC industry and hence they are unwilling to cede any space to the other players in the ecosystem. The other ecosystem players are moving very fast to take control over most of the components of the value chain. The following examples illustrate the uneasy relationship between the operators and handset vendors:

1. Direct Handset Sales: Last year, Google tried to sell Nexus One online in a bid to directly sell it to the end user instead of the carriers in a bid to shakeup the carrier dominated distribution model.Google wants the carriers to offer just the voice and data so that it can offer its services freely and reduce the carriers to a dumb pipe. Though the Nexus One experiment did not succeed, it does point towards the tussle between carriers and handset vendors for direct access to users. There are rumors that even Apple is attempting to do the same by selling phone through its iTune store. There are no indications that suggest that Google has given up the idea of selling handsets directly to the consumers.

2. Embedded Software SIM - There are reports of Apple working on embedded software SIM that would allow the users to buy the phone on the web and then select the carrier of their choice. Embedded SIM can potentially increase churn and the carriers may need to bid to be on iPhone’s SIM that could lead to a price war in competitive markets. Many analysts believe that with handset vendor controlled embedded SIMs, the dis-intermediation of carriers from retail distribution would just become a question of timing and degree. So concerned are the operators with this development that they have started to work on embedded SIM standards under GSMA so that they can influence the standards and make it compulsory for all the players to adhere to them.

AppleInsider has discovered a patent awarded to Apple that could further shake up the way carriers do business. The patent, entitled “Dynamic carrier selection,” describes a method for providing wireless communication services. According to the invention, a mobile device would store a network address and communicate with network operator servers. After receiving data from available network operators, the device or user would select a carrier. The invention would allow Apple to run a MVNO system that could collect rate information from participating wireless networks within a region and automatically select or allow users to select the best option.

3. Ecosystem wars – Leading operators across the global have announced partnership to launch their own application development effort under the name of Wholesale Application Community (WAC). The group, an allegiance of telecommunications firms and others working together to create a common mobile platform, has a goal to simplify the mobile application process for developers, allowing them to deploy mobile apps across all member networks simultaneously. Essentially, it’s an effort to build a global mobile application store in response to the hugely popular OEM stores. WAC apps are designed to be used across all platforms, so conceivably the same WAC application could work on an Android phone and an iPhone. This is interesting as the battle is now about ecosystem and not about device features. The handset vendors are trying to create the ecosystem around their operating system which the operators are trying to break via WAC.

4. Duopoly fears – Carriers fear that Google and Apple would control most of the parts of the ecosystem and hence are keen that the vendors do not select Android as an operating system. According to IntoMobile, a group of European mobile operators have concluded that iOS, Android and other such operating system are “trojan horse” that are stealing away the operator’s direct relationship with their customers, and therefore vast revenues. The carriers fear that in case the operating systems get reduced to two, they would lose the bargaining power and could soon find themselves in the same situation as service providers for fixed line internet. There reports that they are willing to back other operating systems and are even contemplating their own operating system. Nokia’s selection of Windows as primary smartphone operating system must be a relief for the carriers.

5. Near Field Communications- Near Field Communications (NFC) is a technology that has the potential to make the mobile payments easier by just tapping the phone at the Point of Sale (POS). Though the technology has been in existence for many years now, the recent push by Google and Apple seems to have changed the equation. Google and Apple want to drive billing through a device to challenge the operator billing alternative and this move would bring them right in the center of the mobile payments.

In summary, the pace of change in the telecommunications industry is refusing to slow down and we are likely to head into more interesting times in the future. The convergence of the voice, data and video networks are having profound effects on telecommunications organizations, infrastructures and platforms. The ecosystem wars are here to stay!!!

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]]>http://www.telecomcircle.com/2011/03/changing-dynamics-of-telecom-industry/feed/6Google: Don’t be Evilhttp://www.telecomcircle.com/2010/08/google-dont-be-evil/
http://www.telecomcircle.com/2010/08/google-dont-be-evil/#commentsMon, 23 Aug 2010 18:50:28 +0000http://www.telecomcircle.com/?p=2287

“Don’t be evil“ is the informal corporate motto of Google, originally suggested by Google employees Paul Buchheit and Amit Patel at a meeting. Google has the philosophy that”You can make money without doing evil.” Google claims to have made “Don’t Be Evil” a central pillar of their identity, and part of their self-proclaimed core values. Google has been accused of deviating from this motto a few times in the past. In 2006, Google reached a deal with China and censored search results as part of the Golden Shield Project of China. The argument changed from “Don’t be evil” to “Evil Scale” in case of China. Steve Jobs accused Google of back stabbing by entering into the phone business and now the policy proposal along with Verizon this month seems to be last nail in the coffin.

One company for which I had utmost respect was Google. However, my faith in the company is now shaken after the policy framework it released along with Verizon in US in a bid to control the wireless internet (Download Verizon-Google-Legislative-Framework-Proposal to read the fine prints). In the proposal, it is clearly mentioned that for Wireless Broadband, the non-discriminatory requirement would not be applicable. This means that a service provider can engage in undue discrimination against any lawful Internet content, application, or service in a manner that causes meaningful harm to competition or to users. In other words, Verizon would decide in US which content and application can get priority over others and Google by virtue of its dominant position, would get a preferential treatment. It is like two giants coming together and deciding that no new service or application can come up unless it has their blessings.

Most of the industry observers have termed the action of Google as end of net neutrality which would lead to a two tier internet. One super fast internet for the privileged content and the other for the less privileged like the startup firms. First of all there is no logic for applying different parameters to wireless broadband and wired broadband. Yes, the carriers are making investments but the investments in the wireless broadband are less than that in the wired broadband and with technological advancements, the bandwidth cost is coming down drastically as carriers move from WCDMA to HSPA to 4G.

The network carriers have been indulging in acting as toll gates in the past. Many carriers across the world have restricted or slowed access to the peer to peer (P2P) file sharing services like BitTorrent, FastTrack, etc. In October 2007, Comcast, one of the largest broadband internet providers in the USA, started blocking and jamming P2P applications such as BitTorrent. Their rationale was that P2P is mostly used to share illegal content, and their infrastructure is not designed for continuous, high-bandwidth users. The network management clause gives partial legality to this action under the disguise of reasonable network management to reduce or mitigate the effects of congestion on its network. One of the core issues behind the network neutrality controversy is over P2P applications.

Apart from P2P file transfer, the carriers would also try to block Skype, Pandora and other VOIP services to protect their voice revenues. The operators can be transparent about blocking VOIP services but it does not help the consumers in any way. Will they treat the Google Voice the same way as Skype or Pandora? Knowing Google, I am sure it would be willing to do a revenue share with carriers to get carriers to allow Google Voice.

I am particularly worried about the startups companies as any technology that would threaten the carriers either from the service point of view or from bandwidth requirement point of view is likely to be be blocked on wireless internet depriving the consumers of any innovations. Imagine a situation where a startup were to come up with a service that can threaten the carriers or the allies of the carriers, in all probability the carriers are likely to block the service. It is very much evident that the wireless internet is the next big thing, even bigger than the wired internet and hence it is imperative that we do not create unnecessary hindrances to its growth.

Wireless carriers are trying to manage their relevance so that they do not become a dumb pipe just the way it happened to the wired carriers. This explains why Verizon is a party to this recommendation. Coming from the industry giants is going to put extra pressure on FCC. Even AT&T is not averse to Google and Verizon’s position on net neutrality in the wireless industry. The proposed penalty for violation of consumer rights like failing to be transparent would by just $2 million which the carriers would happily part with if they can hurt the smaller competitors by blocking their service.

All in all, if these proposals are excepted by FCC, the consumer would be the loser. To summarize, I would borrow the quote of Jeff Jarvis of Buzz Machine who called this proposal a Munich Pact.

Netizens are now citizens of the Sudentenland. Just as Czechoslovakia was not invited to its cutting apart, so were we not invited to Google and Verizon’s parlays.

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]]>http://www.telecomcircle.com/2010/08/google-dont-be-evil/feed/0Network Outsourcing – A Case Studyhttp://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/
http://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/#commentsMon, 02 Aug 2010 08:19:58 +0000http://www.telecomcircle.com/?p=2206When pushed to the wall due to competitive pressures from the CDMA players in 2003, Bharti Airtel decided to focus on cost reduction as well as prepare itself for explosive growth. More than the cost reduction, Bharti wanted to ensure that it builds a world class network and still able to focus on the core, i.e. the customers. In the last post, I had discussed the framework for deciding on outsourcing of different functions of an operator. In this post, I would focus on the outsourcing of networks – the benefits of network outsourcing and how should it be managed. In order to illustrate my point, I would use Bharti as a case study as it was one of the first few operators to outsource and is still ahead of others in terms of its thinking in this area.

What were the reasons for outsourcing of network by Bharti?

Bharti realized pretty early that network is not the core for the company and needs to focus on customers by providing them a reliable, affordable and best in class service experience. To be able to do this, it needed more resources and was unsure of the results due to lack of expertise in this area. Bharti was in no position to manage the network better then Ericsson or Nokia or Siemens (now Nokia Siemens). It was facing competitive pressures from CDMA players (Reliance and Tata) and need to have a single minded focus on cost reduction (refer – How can carriers make 40% EBIDTA margin at 2 cents/min tariff?). They embarked on the outsourcing journey with the following objectives in mind:

Focus on the core and outsource the context

Faster time to market as well as build scalable networks

Enhanced customer experience through better quality of service

Get the best people/company across the globe to manage network

Predictable total cost of ownership (TCO)

Convert CAPEX to growth based OPEX

Controlled spending due to optimal capacity planning

Get access to latest technology, expertise and processes leading to improved productivity

The potential benefits of a broader use of network outsourcing are considerable. Based on our experience,clients can generate cost savings of up to 40 percent, achieved through lower-cost sourcing of high-quality talent, consolidation of fragmented operations and the synergies of leveraging resources across companies and geographies.

However, we should look beyond cost advantages to the other benefits that I have listed above.

What are the different Levels of Network Outsourcing?

1. Build and manage capacity:

Normally most of the carriers start with outsourcing the designing and deployments of the networks. This is most simple form of outsourcing with relatively low risk. The risk is low and so is the value to the operator. This helps the operator in reducing its total cost of ownership of the network and can get the capacity deployed as and when required.

2. Managed Operations or Services:

In this case, the equipment vendor takes full responsibility for network and service operation activities. Activities can cover planning and design, as well as the establishment and deployment of the operator’s network and management of the day-to-day activities, including field operations. In this case, the real synergies start to emerge and can add immense value to the operator.

3. Hosting Services:

In this form of outsourcing, the vendor takes responsibility for management and integration of the hosted solution and facilitates content distribution as well as content life cycle management. The typical offering includes entertainment and media services (music, TV, downloads etc), messaging and communication services (MMS, voice SMS, video mail and push email etc) and charging and management services (prepaid and automatic device configuration etc). Hosting enables faster launch and integration with cost efficient service. This is the most mature form of outsourcing and brings maximum value to the operators. With the increasing number of VAS offerings, the management of Value Added Services (VAS) is becoming increasingly difficult leading to many operators looking at option of hosting services from the equipment vendors.

What has ensured the success of network outsourcing for Bharti?

Traditionally, the operators have been responsible for building and management of the network including billing (refer the telecom value chain in the figure below).

Bharti decided to outsource the management, design, development and deployment of network including capacity and coverage to players like Nokia Siemens and Ericsson. The ownership of the assets rested with Bharti while the management and maintenance of the equipment became the responsibility of the service providers (equipment vendors). To ensure predictability of the costs, the payment was based on the peak hour capacity used by Bharti and excluded the unused capacity (capacity is measured in terms of Erlangs; An Erlang is a unit of telecommunications traffic measurement. Strictly speaking, an Erlang represents the continuous use of one voice path. In practice, it is used to describe the total traffic volume of one hour).

To ensure the success of network outsourcing, Bharti prepared a detailed business case detailing its cost structure and the expected cost structure post outsourcing. It also prepared the detailed performance indices and incorporated them in the service level agreements (SLAs). The most important aspect of the contract was clear definition of the roles and responsibilities of Bharti and the service provider. On its part, it developed an efficient governance mechanism that ensured its close control on the network operations. Bharti’s employees in the network function were transferred to the roles of the service provider.

Key lessons from Bharti’s case study are -

Do not outsource a few tasks in the network operations but outsourced the entire process.

Do not base outsourcing decision on only the cost considerations but also on the larger value proposition of being able to provide subscribers a world class experience.

Do not focus on only outsourcing the current process and doing the “same thing for less” but also look for opportunities to consolidate and transform the entire function. In case of Bharti, the service providers were able to provide greater value as they eliminated the manual work and implemented best practices that they followed across the world.

Initially the contract was for three years but it was extended again given the benefits it was able to give to the operators.

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]]>http://www.telecomcircle.com/2010/08/network-outsourcing-a-case-study/feed/5Outsourcing Framework for Mobile Operatorshttp://www.telecomcircle.com/2010/07/outsource-dilemma-in-telecom/
http://www.telecomcircle.com/2010/07/outsource-dilemma-in-telecom/#commentsMon, 19 Jul 2010 17:35:11 +0000http://www.telecomcircle.com/?p=2162Like any business, we face the dilemma of outsourcing even in Telecom Industry. There are various views on outsourcing and the arguments of the proponents and opponents are equally convincing. Indian companies like Bharti Airtel, Idea, Vodafone Essar have outsourced some of the functions like network and IT which is still considered as core by many telecom operators in the western world.

Outsourcing is an important decision and it cannot be decided without giving proper thought to it. A framework is needed to help the operators decide on the contentious issue of outsourcing. If a function is core to the success of a company, then it cannot be outsourced but the problem is how do we identify the core. Geoffrey Moore explains the concept of core vs. context in his book “Living on the Fault Line” -

Everything begins with strategy. Strategy determines what is core to a company’s competitive advantage. Sustainable differentiation is the basis of economic success. Differentiation creates the basis for customer preference and gives a company pricing power. Sustainability is based on a barrier to competition and increases the returns on investment. Core is defined as any process that contributes directly to sustainable differentiation. Context is all other processes required to fulfill a company’s commitments to one or more of their stakeholders. Everything that gets done in a company is either core or context.

In optimizing resources, the goal in core is to create competitive advantage. Differentiation is critical here. This is the place to invest human and financial capital. On the other hand, with context activities, the goal is to meet market standards. Differentiating on context is a mistake and one that is costly. The key is to extract human and financial capital from context wherever possible and repurpose for core.

Moore uses the 2×2 matrix to determine the functions that can be outsourced but also cautions on the way it should be outsourced. I have taken the same matrix and applied on the Telecom Industry to arrive at the outsourcing framework for mobile operators (refer figure below).

The above becomes a very good framework to decide what needs to be outsourced and how. The companies cannot outsource the core that is mission critical. I would say that no operator can outsource its customers to any other company. Similarly, the development of employees cannot outsourced as it is the employees that define culture of the company and they bring in the customers. Strategy and Finance functions should always be kept close to the heart as they certainly help a company differentiate itself from others.

Anything in the top right quadrant (context and mission critical) is difficult to outsource but can be outsourced as they do not differentiate the business from competitors. Network operations were probably core when the mobile services were being rolled out but now it is no longer a differentiator (it is a hygiene) and hence can be outsourced. If we continue to insource network operations, we are likely to waste scarce resources and attention in an activity that does not give us any advantage. This may result in missing the opportunities due to lack of focus. The outsourcing of non-core activities also help us unlock the company’s wealth that can lead to higher stock prices.

IT services should also be outsourced as the companies do not have enough resources and cannot focus on development of cutting edge IT systems. Similarly, there could be other companies that can manage the VAS and customer support services better. One company’s context can be core of some other company. It is always better to outsource the context functions to a company that treat them as core. This would ensure that the value keeps generating within the system.

Functions that are support or non-mission critical and context can easily be outsourced. The challenge here is to ensure day-to-day quality and period quality checks should give the desired results.

For the context and yet mission critical quadrant, we need to have a very robust outsourcing strategy as the key challenge is keeping the control. The partner selection needs to be very carefully thought decision and the relationship should be governed by strong service level agreements (SLAs). In the next few articles, I would focus on how to outsource and what should be strategy of the operators while outsourcing.

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]]>http://www.telecomcircle.com/2010/07/outsource-dilemma-in-telecom/feed/11Withdrawal Syndrome for Unlimited Data Planshttp://www.telecomcircle.com/2010/06/unlimited-data-plans/
http://www.telecomcircle.com/2010/06/unlimited-data-plans/#commentsMon, 28 Jun 2010 10:57:29 +0000http://www.telecomcircle.com/?p=2036Recently, O2 announced a revised set of data tariffs for new and upgrading mobile customers in the UK. Customers will have a choice of “smartphone tariff plans” with a bundled data allocation of 500MB, 750MB or 1GB, depending on the total monthly fee, which ranges from £25 to £60. Earlier this month, AT&T had withdrawn unlimited data plans from its network. If the AT&T and O2 are any indicator of the future, the unlimited data plans could soon be a thing of the past.

In April 2010, Opera Mini users generated over 398 million MB of data for operators worldwide. Opera compresses the data by up to 90% and despite that this huge data was consumed by its users. Opera has close to 26.23% market share as per a report from Statcounter as of June, 2010. This means that the total data consumption across the world is much larger than 1150 million MB (Cisco estimates it to be closer to 2000 million MB) and this has been growing at over 100% annually. Cisco has predicted that the mobile data usage would continue to grow at over 100% CAGR until 2014.

If the data consumption continues to grow at the rate forecasted, the operators have a huge problem at hand. The increasing market share of iPhone and Android (Android has reached 10% share of smartphones in just 6 quarters) is likely to make the situation worse than Cisco’s forecast. In the figure below, it is clear that though Apple and Android have just 25% share in smartphone sales, they consume almost 67% of the total data traffic. This means that the average data usage on iPhone and Android based phones is a little under 3 times than that on any other phone.

The data networks were hugely under-utilized before the launch of iPhone. Operators had invested huge money in 3G networks and the due to low usage, they were finding it difficult to recover the investments. In order to increase usage and adoption, the carriers started to offer flat data plans and some of them went a step further by giving unlimited data plans. This was a great strategy on part of carriers and the analysts lauded it profusely and even lectured the carriers that were not offering unlimited data plans on its value proposition. With the advent of iPhone, the mobile Internet usage shot through the roof as the applications became more data intensive and the users started to download full track music, use peer-to-peer (P2P) file transfer and streaming services.

In US and some European countries, iPhone has really high market share putting extra strain on the carriers in those countries. O2 revealed that less than 0.1% of its subscribers account for a third of all network data traffic. Just 3 percent of users on smartphone tariffs account for 36 percent of its smartphone data traffic. The disproportionate data network usage by smartphone users (especially iPhone) meant that the other users were subsidizing the data usage of smartphone users. This is not only unfair but also unsustainable. O2 has been spending around £1m a day to upgrade its network to cope with the “exponential demand” for data on smartphones. AT&T had also claimed similar numbers on data usage.

It is getting increasingly clear that the operators in most of the countries would be left with two choices: either increase the data capacity by investing in the newer technologies like LTE or stop offering unlimited data plans. Given the financial health of the carriers and the maturity of LTE, it is likely that the carriers would adopt the later approach, i.e. stop offering unlimited data plans to consumers. Alternatively, the carriers can adopt the approach of promoting and offering incentives on handsets like Nokia and RIM that are either more data efficient or the data usage is lower by consumers on these phones.

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]]>http://www.telecomcircle.com/2010/06/unlimited-data-plans/feed/1Location Based Tariff Plan from Telenor in Indiahttp://www.telecomcircle.com/2010/05/location-based-tariff/
http://www.telecomcircle.com/2010/05/location-based-tariff/#commentsTue, 04 May 2010 17:32:05 +0000http://www.telecomcircle.com/?p=1890Uninor, which is a joint venture between Norway’s Telenor and India’s Unitech, came out with an innovative tariff plan to attract subscribers in a highly competitive Indian market. In this market, competition intensity has meant lower tariffs but Uninor has introduced the dynamic pricing where customers would be offered 5-60% discount based on traffic on the network. The traffic would be function of location and time at which they call. The discount would change on an hourly basis and the discount available at any moment will be visible at all times on the screens of handsets that display cell broadcast. When the call ends, a flash will appear on the phone screen indicating the actual discounted cost of the call. Discounts are calculated by a sophisticated ‘Discount Engine’ that relies on state-of-the-art IT systems to continuously monitor traffic at every tower in the network. This plan is called ’24X7 Badalta Plan’ which in English means ’24X7 Changing Plan’.

Many analysts have dubbed this plan as a revenue depleater. They suspect that the effective call rates would fall and this is another way of triggering tariff war. However, I differ in the assessment and feel that this plan has a potential to increase usage. Anybody who needs to call would call irrespective of the time and place but if the user sees 50% discount flashing on the screen, he would be tempted to call-out to his friends or family. I would not be surprised if this plan leads to overall increase in ARPU due to higher minutes of usage.

Uninor has already outsourced its network and in case of managed services, the payment is made on peak capacity. This means that the increased utilization in off peak hours is at no extra cost till the time it does not cross the peak capacity. This effectively means that any increase in usage would go straight to the bottom line and hence the EBIDTA of this plan would be very high. If Uninor customers do not make call in the peak hours and wait for the discounts then Uninor pay outs would come down on account of lower peak capacity in future. This way it is a win-win situation. Operators have tried to give incentives for usage in non peak hours like night usage at half price but the pricing has never been this dynamic.

Another benefit of this plan would be ability of the operator to offer differential pricing in rural and urban areas. The capacity utilization is low in rural areas. The dynamic pricing of Uninor would offer higher discount in rural areas and lower discount in urban areas. This would not only help fill up the rural network but also help Uninor differentiate itself from other operators in the lucrative rural market.

The location based pricing is a radically new concept and it would be wrong to dismiss it as yet another means of lowering tariff. Having acquired the ability of monitoring the network utilization by tower on a real time basis, Uninor would be in a position to collect consumer data on the price elasticity which would help it in designing better plans. Most of the operators struggle with questions around price elasticity when it comes to plans aimed at increasing usage. I for one would be interested in tracking the success of this plan.

]]>http://www.telecomcircle.com/2010/05/location-based-tariff/feed/6Bharti – Is Zain a good match?http://www.telecomcircle.com/2010/03/bharti-zain/
http://www.telecomcircle.com/2010/03/bharti-zain/#commentsWed, 03 Mar 2010 09:03:56 +0000http://www.telecomcircle.com/?p=1513On 15th Feb, 2010 Bharti announced the acceptance of its bid for Zain’s Africa business by Zain’s board. The deal value is $ 10.7 billion which Bharti plans to fund by loans arranged by Standard Chartered Bank and a couple of other Banks. This is the third attempt by Bharti to enter Africa after two failed attempts with MTN of South Africa. The share price of Bharti took a serious beating after this announcement as most of the analyst felt that Bharti is overpaying for Zain’s assets by around $ 2 billion. My analysis shows that it is a good deal for Bharti and its stock price would rise in the long run. In fact, just after the announcement of the deal, I brought Bharti shares and my optimism is based on the following facts:

1. Low Financial Leverage

Bharti has a very low “Net Debt to Equity Ratio” of 0.05 at the end of Dec., 2009 which means that it is virtually a debt free company. It is good to have low debt but zero debt is not a desirable situation as debt can increase the shareholders’ return on their investment due to tax advantages associated with borrowing. The figure along side illustrates how financial leverage can help companies optimize their cost of capital. As it can be seen from the figure, the total cost of capital is high if there is no or low debt and there is a level of financial leverage where the total cost of capital is the lowest. Most of the companies try to maintain leverage at the level where the total cost of capital is lowest.

Bharti is a profitable company with over 40% EBIDTA margins which is higher than the cost of debt. This means that it is better for the company to pay interest than paying dividends to a large number of shareholders and hence it should either reduce the shareholding (through share buyback) or increase debt and deploy debt in a profitable way. Bharti has selected the second option and is taking debt to buy Zain that would return higher profits in the long term. It is like investing for the future. Even if Bharti were to pickup $ 7 billion for the Zain acquisition as debt, then also the leverage is unlikely to exceed 1 which would still be lower than many listed companies. To put the case in perspective, Verizon has a debt to equity ratio of 1:45 while the similar ratio for Sprint Nextel is at 1.19 and for Telefonica, it is as high as 2.78 (source: Forbes financial application).

2. Free Cash

Bharti is one of the few carriers across the world that has free cash flow and it does not make sense for the company to keep sitting on the pile of cash when it can deploy it in productive assets. The capex in the Indian operations have started to decline and hence the free cash flow is likely to increase even further in future. If Bharti decides to fund the Zain acquisition through debt, it would not find much problem in servicing this debt due to generation of free cash flow in the years to come.

3. Attractiveness of African Market

Africa is the next frontier as far as mobility is concerned. As markets saturate, the carriers start to look at opportunities outside of their domestic markets. Vodafone invested in India around three years back to increase the growth potential of its revenues. Now that the tariffs have declined significantly in India and that the penetration levels have crossed 45% in India, there is little opportunity left in the domestic market for Bharti. The penetration levels in Africa are around 33% and the ARPU levels are high varying from $8 – 12 (apart from Kenya and Ghana where it is closer to India ARPU levels of $4). Bharti can replicate its low cost model in the African market which would not only bring the cost down but would also result in significantly higher subscriber addition. The level of competition in Africa is not as intense as India as most of the countries have no more than 4-5 operators. The countries where Zain has operations in Africa have a population of close to 500 million which is an indicator of the opportunity that lies in Africa.

Summary

I believe that with this deal, Bharti would be able to increase the valuation of the company in the longer term. The Zain deal would turn out to be better than MTN as it would be an outright purchase rather than co-ownership as in case of MTN deal. Most of the joint ventures or mergers fail due to cultural issues and ego issues between partners and the ego issues are more likely in co-ownership model. Moreover, in case of Zain, the regulators are unlikely to hold the deal on account of nation pride as Zain does not belong to any of African country and hence there would not be any insistence on dual listing or any similar binding as it was in the case of MTN.

]]>http://www.telecomcircle.com/2010/03/bharti-zain/feed/2High Subscriber Churn impacting Environmenthttp://www.telecomcircle.com/2010/03/sim/
http://www.telecomcircle.com/2010/03/sim/#commentsMon, 01 Mar 2010 10:26:02 +0000http://www.telecomcircle.com/?p=1534500 million new mobile connections are expected to be added this year which means 500 million new sims. On top of that Wireless Intelligence estimates that quarterly churn rate for the world is 3% which means annual churn rate is 12%. Taking 12% churn on existing 5 billion connections mean that additional 600 million new sims will be manufactured without any compelling reason. Because the user already had a sim card in this particular case, these new sims will not add any value to the telecom world apart from few manufacturers making money.Apart from unnecessary costs associated with manufacturing these sims, there are costs associated with either recycling the old sim card or the environment related costs if the sim just stays somewhere in the environment.

I have always struggled to understand the logic behind changing the sim card every time a user is changing the service provider.

I just simply call my new provider and ask them to switch it and they switch it in 10-15 days without me worrying or changing anything. This should be equivalent any post pay mobile subscriber where if he/she wishes to change the provider, a call to the new provider should be sufficient.

Similarly If I have to put petrol in my car I dont go about changing the tank everytime I am using a different petrol filling station, I just simply go to the gas station and use the same tank in the car to top it up with new petrol. Now this is like a pre paid subscriber. So everytime a subscriber needs to change the provider, all he should be doing is top up the mobile with the new service provider’s minutes and there you go.

I dont see that happening and neither do I see people talking about it. Is this because the cost attached with manufacturing these additional sims is too small and is not worth the effort or it too complex too deal with. With regards to complexity, surely if utility companies can learn something from mobile providers, mobile service providers can learn something from utilities.

Lets look at the cost implications for sim replacement. I mentioned earlier that every year close to 600 million mobile sims are being replaced. This number is going to increase rapidly as number of prepaid subscribers will increase (assuming churn is higher in pre-paid). Lets assume that cost to produce a single sim is 10 cents which gives us savings of $60 million which is actually insignificant compared to the total size of the industry. This might though become a big cost if we were to take the present value of all the future savings as well. Taking an eternal growth of 10% in the number of subscribers churning every year with the discount rate of 5% will give the net present value of all the future savings equivalent to almost a billion dollars. Now this sum is not insignificant. But that’s talking in a very long term and nobody is sure whether sims or mobile would at all be there 10 years from now. One never knows when the new technology will come into the picture. Or in fact M2M can lead to increase in this figure substantially.

But for me the bigger cost is the environment cost. As the sim cards are non-biodegradable, they are hurting our the mankind and responsible for problems which we will see in the future. So if not for short term savings, environment preservation does make a strong point to negate the case for sim replacement.

Other than that, I believe users (at least the pre pay subs) would also be more empowered if changing a service provider was as easy as buying top up time from the new provider. If changing the operator was so easy, probably flimsy short term plans to entice the users will also be short lived and operators will become more responsible.

Finally, I’ll be really glad if somebody could come up with technology like this to help the operators save costs, create value for the mankind, save the environment and empower users at the same time.

I had a great holiday in Thailand but I lost my mobile phone there . I lost my mobile phone on the second day of the holiday so I was desperate to get a replacement SIM but could not get another SIM till I came back home and went to an outlet of the service provider. I believe that in the process, I had a painful time but the service provider and its roaming partners also suffered revenue loss.

Mobile companies are in many ways operationally similar to credit/debit card companies. Like credit card companies, mobile companies provide credit in the form of talk time to be used anywhere in the world but at the same time monitor fraud and bad debts. A large number of employees in a mobile service provider are from the credit card industry and the industry looks up to the credit card industry for best practices. However, unlike the credit card companies, the mobile companies are not customer friendly. A Platinum card member of American Express gets a very different treatment from the silver member of CitiBank. However, there is very little differentiation amongst the operators and the service they provide. The players compete on tariffs rather than on customer service. The churn in the countries that allow Mobile Number Portability (MNP) is not very different from non-MNP environment as consumers realize that there is very little to choose from amongst the operators apart from the tariffs.

Most of the credit card companies promise a replacement card on loss of the card anywhere in the world. I expect the mobile operators to provide similar service. I know the operators do not have presence across all the countries and hence it is difficult for them to offer a replacement guarantee but there is a simple solution to this problem. The mobile operators can give a spare SIM to all its customers who have roaming activated on their phones. This SIM could be a blank deactivated SIM which can only be activated in the event of loss of primary SIM. The user can report the loss of SIM by email or phone and then the spare SIM can be activated. I tried to google for the best practices in case of lost SIM but to my surprise I did not get any relevant results.

Just like there are a lot of takers for business class seats in the airline industry, I am sure there would be enough people who would be ready to pay a premium for the differentiated service. I have a value proposition for carriers in a crowded competition landscape like in the US or in India: Let the carrier charge a flat fee which is four times that of the average APRU in the country and provide the following benefits in return:

Exclusive Number Series - The service provider can provide the numbers in a way that it gives a feeling of exclusivity to the consumer. The number on the business card should indicate that the user is using the exclusive high end service provider. If this is not possible due to regulatory issues, then the ringback tone could be a different one so that the callers come to know that the person being called belongs to the exclusive club.

Unlimited Usage – Since the user is already paying the monthly fee which is four times the average ARPU, there is service provider can allow unlimited local and national calls & unlimited data usage. There is a high probability that the high end users have a higher proportion of business travel which would result in a disproportionate share in roaming revenues

Exclusive Relationship Manager – There should be a designated relationship manager who should provide resolution to all issues and problems. In the event of needs during off-office hours, the access to call center should be easy. The call centers should not have irritating IVRs (Interactive Voice Recognition) and the call should be answered within 10 seconds.

Seamless congestion free network – There should be perfect indoor coverage at most of the business districts and homes of the users. In case of network complaint, it should be resolved on priority

No Spam – The user would not get unnecessary calls or sms and the carrier should ensure that it has effective means of controlling SPAM

On-site support – In many cases when a handset is replaced, the user is unable to configure all the services on the new handset especially in an open market environment. The carrier should provide the support at the user’s premises in such cases

Unlimited Credit – Most of the carriers assign a credit limit to the users when a new connection is given out and it has been observed that the credit limit is so low that many users exhaust the limit within a few days of usage. For the users of this exclusive plan, there should be no credit limit

Global SIM Replacement

Invitations to exclusive events/ Club memberships/Access to airport lounges

Will you not pick up the above plan? Is service not a differentiator? I am confident that with this kind of approach to customer service, any operator can churn-in the high value users of other networks especially in the MNP (Mobile Number Portability) environment.

Mobile industry probably has one of the most extensive ecosystems. Ecosystem is the set of players who come together to deliver the experience or product to consumer in any industry. The mobile industry has been expanding its scope and hence the number of ecosystem players. Typically, the key actors in the value chain are operators, handset vendors, content owners, developers, publishers, aggregators, content distributors, advertising platform owners, advertisers, mobile platform owners and regulators.

So far, the industry developed in a way that the control over the value chain was that of a mobile operator as in the past, the mobile operator took the onus of taking all the risks in delivering mobile services to the consumer. The other players in the ecosystem could not develop the direct relationship with the consumers as either they were risk averse or the nature of business was such that the direct relationship was not feasible. The situation in the adjacent computer industry is entirely different as the standards are open with unrestricted access to internet.

Open is probably the most abused and confused term in the glossary of mobile phones. Through this post, I am attempting to clearly explain what all is within the scope of open mobile ecosystem.

What is an Open Mobile Ecosystem?

An open mobile ecosystem allows a consumer to access any application and content on a device of its choice without binding them to any single network. The following are the necessary conditions for the open ecosystem:

Open and interoperable Standards – This allows larger participation of the ecosystem players that eventually leads to economies of scale.

Openness in network access – This means that the operators and other players should facilitate unrestricted access to internet and services. Operators sometimes block certain sites to increase the download from their portals. This is contrary to an open environment philosophy and it may ultimately hurt the operator itself as it may lead to lower access charges. All sites should enjoy similar access rights as that of operator’s portal

Level playing field for all stake holders – this means that the IPR terms should be fair and reasonable for all the players. The main reason for the slow growth of CDMA in comparison to GSM was the unfair IPR related royalties levied by Qualcomm

No preferential distribution mechanism – The distribution models should evolve from consumer needs rather than the need of the dominant player of the ecosystem

No SIM Lock or network lock – Consumers should be able to use the device of their choice across operators. This means that even a Verizon customer in US should be able to own and use an iPhone

Open network APIs – Carriers should share the network APIs with developers to facilitate application development including location based services

What are the drivers for an Open Mobile Ecosystem?

The communications industry is experiencing unprecedented change. The figure below from Cap Gemini TME lab shows that the initiatives that have been taken by various players suggest that the ecosystem is likely to undergo a huge transformation. The pace of these changes has been steadily increasing as more players embrace the philosophy of opening up networks and access.

The situation in the mobile ecosystem is fast changing due to following key drivers

Changing Business Models – The mobile operating systems are getting open source led by Android and Symbian. The handset vendors like Nokia have the ambition of getting into internet services and actions of Apple and Google have strengthened the hands of developers. The fragmented value chain is getting strength through the services ambitions of handset vendors and internet players. The technological advancements mean that it is now possible to bypass the carriers and with micro-payments becoming a reality, there is absolutely no need for a carrier. All this means that the carriers now are not in a position to maintain closed ecosystem

New services and applications – The lucrative new services like mobile commerce, ticketing, etc. are forcing the carriers to shift to open ecosystem as these services require open platforms and interoperability

Increasing consumer demands – iPhone effect has led to consumers becoming far more discriminating about their services and devices, user experience trumps technology and price as the key driver behind purchase and adoption. Increasing device capability is certainly a key driver for open mobile ecosystem adoption

Network investments to flatten as the IP backhaul cost per MB reduces when the industry moves from 2G/ 3G (TDM networks) to IP based LTE networks. The fig below (source: Analysys Mason) shows how the bandwidth availability increases without a proportionate increase in costs.

Increasing data capacities of networks as the operators move to 3G and 4G have forced the operators to look at increasing internet access revenues. Lower bandwidth cost to consumers means no premium for mobile broadband over fixed broadband can be charged by the operators. Flat rates are being offered to lure consumers who would get excited only if there is unrestricted access to internet

Operators shifting focus to other computing devices like Mobile Internet Device (MID), Ultra Mobile PC (UMPC), Netbook and tablet PC to increase the capacity utilization of data networks. These devices are closer to computers and hence the consumers of these products demand near PC experience.

It is a common perception that Open Mobile Ecosystem is not in operator’s favor and its adoption would result in revenue loss. But these fears are unfounded as in the long run, the operators would benefit from adoption of open mobile ecosystem. Cap Gemini estimates that a UK mobile operator with a 20 percent market share could see a net revenue uplift of 12 percent by 2001 by adopting the Open Platform strategy.

It is a long journey to full adoption of open mobile ecosystem and is likely to witness a lot of challenges but it is clear that the changing business environment would force the industry to move in this direction.

]]>http://www.telecomcircle.com/2009/07/open-mobile-ecosystem/feed/2The Economics of Mobile Application Storeshttp://www.telecomcircle.com/2009/05/the-economics-of-mobile-application-stores/
http://www.telecomcircle.com/2009/05/the-economics-of-mobile-application-stores/#commentsSun, 17 May 2009 07:25:44 +0000http://www.telecomcircle.com/?p=582Apple Application Store delivered its billionth application to its user on 23rd April. I do not know if Apple is the first front store to clock a billion downloads but certainly, it is the most talked about application store. The hype created by Apple around applications has made the phone much more personalized and useful to the user. Will Applebe able to sustain the hype is yet to be seen but one thing is certain, the competitive landscape would be very different in this space in the years to come.

Operators and a few third party stores have been offering the applications for a long time now. Most of the operators have their own content portal from where the users can download the applications. Vodafone has “Vodafone Live”, NTT DoCoMo has “iAppli” and Airtel has “Airtel Live” as portals from where applications can also be downloaded. However, after the launch of Apple Application Store, many other device vendors like Nokia, Palm, RIM and Operating System owners like Google and Microsoft have announced their own specialized applications store. The strong competition from the new players is forcing the operators to alter their strategies.

There are essentially three types of stores:

Operator Portals, e.g. Vodafone Live – Normally, these type of stores are within the walled garden of the operator and have an inherent advantage of having the direct billing to consumer facility. The developers need to tie-up with the operator and the operator takes over the responsibility of marketing, distribution and billing. However, in most of the cases, barring Japan, the revenue share is highly skewed in favour of the operator. In Japan, close to 90% of revenues are shared with the developer which is a big incentive for the developers to develop quality applications

3rd Party Store Fronts, e.g. GetJar – The users use the open internet to access the 3rd party application stores which supports a large number of platforms and devices. The developer gets a high revenue share but marketing and visibility is a concern in this model. Unlike the operator portal or the device stores, the store does not have direct visibility to the users and hence the users have to search for these stores

Platform Application Stores, e.g. Ovi Store, Android Market – These are the new category of application stores that are being built by the device vendors and the operating system vendors. The biggest advantage is that the stores are embedded into the device and hence the discovery is simple. Moreover, they can target a large user base due to the volumes each device vendor does. This high volume potential is a big draw for the developers. Apple has also started the trend of sharing up to 70% of net revenues with the developers which means the developers are in demand like never before. The platforms can be proprietary (e.g. Apple) or open system (e.g. Symbian, Android). The trend in the recent times is towards a more open ecosystem

It is important to understand the economics of applications to be able to fully appreciate the recent competitive intensity in this space. I will use Apple as an example simply because there are more data points available for Apple. Apple Store has seen downloads of 1 billion applications and if we assume that iPod users would have downloaded 38% of these applications (out of 37 mn Apple devices, 23 mn are phones and 14 mn are iPods), then the iPhone users would have downloaded 620 million applications. Out of these 620 million applications, 75% are free applications (based on a survey by Wireless Media Lab, Mar’09) and paid applications had an ASP of approximately $1.1 (most downloads were at 99 cents price point). This means that the iPhone owners paid $171 million as revenues to the Apple Store since the store was launched in Jul-08. Taking a 30% revenues share for Apple, Apple’s net revenues were $51 million ($68 million annualized). This may not be a big amount but considering the pull these applications have, the actual benefit get reflected in the device sales and lower marketing efforts for Apple. Counting the iPod revenues as well, the total store revenues would be in excess of $80 million for nine months.

According to Strategy Analytics, Apple has currently a 12% market share by volume in the mobile application market. If Apple iPhone sold 620 million applications in 9 months time and taking its market share up to 15% by 2009 end, then the annual applications demand in 2009 is likely to be 5.5 billion which is huge!!! The market ASP on an application is around $1.5 (much higher than Apple as Apple has 75% of its download as free vs. 40% free application downloads for the industry) which means that the total applications market is worth $8 billion. 67% of all the application downloads happen through the operator portal or BREW and the rest by other players. Developers get 70% from the device vendor stores, 60% from 3rd party stores and 50% from the operator portal. This means that the developer’s share of revenues is 53% on average or $4.3 billion out of a total of $8 billion while the operators earn $2.8 billion from revenue share apart from the access charges. The non-operator store owners get the rest of the money i.e. $0.85 billion. The total revenues from applications are expected to double to $16 billion by 2013. Apart from the revenues from the application sales, another stream of revenues is advertisements which could in fact exceed the revenues from application sales in the years to come.

Apart from the revenues that the application stores can drive, there are other indirect benefits of promoting application usage. It is a well established perception that Apple users have a much higher ARPU than the other device users. The Apple users are also likely to be more loyal to their carriers. Now, that is a game changer for operators. Carriers gain the most from the success of the application stores irrespective of who owns the stores. However, the operators still have a fear of getting marginalized and hence are planning to strengthen their own stores and platforms. Vodafone recently announced its intention to open its network from 3rd party developers. Multi-country operators like Vodafone with large customer base can afford to develop their own platforms but the smaller single country carriers would be left with two options – Either “Do Nothing” and still gain from the revenue share and access charges on account of increased downloads. Alternatively, they can form alliances with other operators across the world and have common platforms. Vodafone has an alliance with Verizon and China Mobile, SingTel has an alliance with Telstra, Airtel, Globe and others. These alliances will provide strength to the carriers in future. Alliances can also be formed with 3rd party storefronts as they may not pose a huge threat to the operators.

Amongst the device vendors, there are two categories – One that has a huge focus on application stores like Apple, Nokia, RIM, etc. and others like the Korean vendors who have a “Me Too” strategy for application stores and would not like to antagonize the operators by focusing on application store. Operators may want to tie-up with the second category of vendors but the consumer pull may force them not to ignore the first category of the device vendor. The wireless business modelsare being redifined and with different ambitions of the entities in the value chain, the power game is now getting interesting.